Hart Hospital Equipment, Inc.- Case Analysis
Overview of the Case
The case is about the dilemma faced by Hart Hospital Equipment, Inc. (Hart), one of the leading manufacturers of medical care equipment. The company has traditionally focused on the sales of some of its products like defibrillators and EKG machines. They used to give healthy sales to the company. However, two years ago the company shifted its focus to its newly released line of monitors. The monitors were big hit in the market and contributed nearly 50 percent of the total company sales. Due to the success of its new monitors, sales have grown by nearly 40 percent over the previous year. As part of its plan to further grow its sales in the market, Hart developed a new product called pacers. It plans to improve its sales in the market by properly changing its sales force structure and giving the required training to its sales force.
History and Background
Most of the sales for a company like Hart which sold medical equipment to hospitals and doctors came through personal selling. Its advertising efforts too are mainly targeted at periodicals that are regularly read by doctors like medical journals and newsletters. In order to successfully sell its products it developed a highly trained sales force who will directly approach the hospitals and make a pitch for the products. As a result, 75 percent of the total marketing expenditure of Hart was spent on the company’s field force. Other than its expenditure on research and development for developing innovative products, Hart spent a total of 13 percent of its sales revenues on its sales force. In view of the increasing competition in the market for its existing products and the planned new releases, the challenge before the company is to come out with a marketing plan to increase its sales in the coming years.
Current Sales Performance
As mentioned in the case, Hart operates in a highly competitive environment. The market for two of its first products, viz. defibrillators and EKG markets is matured. Moreover, Hart’s products did not have any specific innovations that can differentiate them with other products of the competitors that are available in the market. But its new range of monitors that were released into the market two years ago were innovative and did not have competition. Hence, Hart managed to grow its sales by 40 percent for the year 2014 to 71 million when compared with the previous year. Moreover, the sales are expected to grow by another 15 percent in the current years due to the good performance of the newly released monitors into the market. But hart is aiming a further growth in its sales due to the projected release of its new range of pacers which will not face any new competition in the market for some years to come.
Segmenting the Market
While a company that produces niche products that are demanded by a limited number of customers or a company that operates in a very small market can target the whole market at once, companies that operate in very big markets cannot target the whole market at the same time. Moreover, different parts of the market might be having its own distinctive characteristics like unique tastes and preferences of customers, different income levels, and customers belonging to different age groups. In order to effectively target such big markets, it is necessary to segment (divide) them in a proper way. In order to be effective, a market segment should have some distinctive characteristics like easily identifiable, easily accessible, substantial enough to be targeted effectively, and having its unique needs (Wedel and Kamakura, 2000). Market segmentation along with product differentiation are considered to be two alternative marketing strategies that could be used by any marketer to be successful in the market (Smith, 1956).
A market can be differentiated in many ways depending upon the need of the customers. Some of the most common ways in which marketers segment their markets are: Geographic segmentation, Demographic segmentation, Behavioral segmentation, and psychographic segmentation. Since most of the sales of Hart are in the Business to Business Marketing (directly with the hospitals), it followed a geographic segmentation of the market with sales people trained for each of the market segments. Since the new product that is going to be released into the market will also be sold directly to the customers, it would be prudent to follow geographic segment for selling it.
Work Required for Each Segment
Personal selling of product is a complicated procedure that requires specialized skills on the part of the sales people who will be approaching the customers in the marketplace. For this purpose, they need to be trained very well to meet the demands of the marketplace. Personal selling of products also goes through a number of steps. Each of the steps of personal selling that are relevant in selling of products like pacers and other medical equipment are elucidated below.
Before the product is actually bought by the customers, the sales person needs to take a number of precautions in order to successfully convince the customers regarding the product. One of the most important issue that should be remembered by the sales person during the pre-purchase phase is properly prospecting the customers. In the case of Hart, the sales persons should be trained properly to select the hospitals/doctors to whom the new pacers could be sold. Once the hospitals/doctors are identified, the sales person needs to prepare for the presentation to the customers. The sales person should be able to properly estimate the questions that might be raised by the customers. Since the new range of pacers that will be introduced by Hart into the market are new to the world products, the sales person can expect a lot of questions from the prospective customers. Hence, a thorough preparation on the part of the sales person will be required.
After the prospective customers are identified and the presentation is prepared by the sales person, he should approach the customer after taking an appointment. A nicely prepared presentation regarding the new product should be given to the hospitals. Ideally, the sales person can ask all the cardiologists of the hospital to be present at the place where the sales person is giving the presentation. While giving the presentation, should answer all the questions that are raised by the customers. If the customers are satisfied with the product, the sale should be closed then and there after taking a small advancement from the customers. If the customers ask for more time before making the purchase decision, then the sales person should make follow up calls to finally close the call.
The personal selling process cannot be concluded once the product/service has been sold to the customers. Customers will be having a number of doubts regarding the use of the product. This is more so in the case of a new to the market innovative product like pacer. In order to solve such queries of the customers, the sales person should make post-purchase calls to the customers. Post-purchase calls will increase the bond with the customers and increase their loyalty with the company. Post-purchase calls will also help in generating new sales leads through the contacts of the doctors who have already purchased the product.
Sales Force Assessment
Sales Force Strategy
An appropriate sales force strategy is very important to achieve the targets of the respective marketing departments. Sales force strategy can be defined as “the set of strategic decisions that determine where the sales force will focus its attention and the role of the sales force in creating customer value that is consistent with the overall strategy of the firm” (Cron and Cravens, 2010). In the case of Hart, the overall strategy of the firm is to use the sales generated by the new pacers that will be introduced into the market to further improve the market share of the firm. To this end, all the sales persons in the organization are being given adequate training to solicit new customers and improve the total sales of the organization.
Towards this end, it is proposed that the sales force of the organization should focus upon bigger hospitals in their target market. Sales force can focus on both the existing customer base as well as scout for new customers. Targeting a few selected bigger customers will help the company to quickly improve the sales of the new product. Once the sales reach a specific level more number of smaller customers could also be targeted by the company. Targeting the customers in multiple stages will help in achieving the overall strategy of the firm, viz. to significantly improve the sales of the organization through the new range of pacers that will be introduced into the market.
Sales Force Productivity Drivers
Recent research in marketing suggests that the productivity of the sales force could be vastly improved if they can be made to put a good emphasis on the issue of working smarter by practicing certain skills like adaptive skilling (Sujan et al., 2013). In order to motivate the sales force of the organization to properly achieve their targets certain productivity drivers should be specified to them. Sales productivity drivers can be defined as “the decisions sales managers make and the processes they use which directly affect all the parts of the selling organization” (Shim, 2012). Sales force productivity drivers can be of four types:
- Sales research which will includes all the data collection and analysis that is undertaken by the organization to properly understand its target customer base and select the appropriate segments to be targeted.
- Sales force investment and organization which includes deciding on the proper size of the sales force, organizational structure, deployment of resources, and proper alignment of the sales territories.
- People category which includes recruiting the appropriate persons for the sales force, training them properly, and regularly appraising their performance.
- Sales systems category which includes decisions related to compensation of the sales force and other programs that could improve their productivity.
Before finally launching the new product into the market, Hart should conduct appropriate market research to know the markets that should be targeted by the company’s sales force. Once the market that should be targeted by the sales force is decided, the requisite size of the sales force needs to be finalized. If more people are required for selling the new product in the market, they should be recruited. In order to succeed with the new product, Hart should appropriately train its sales force. If it needs to recruit any new sales force personnel it should ensure that only the persons with the requisite skills are selected for the job.
Since the product is a new to the market product with a limited market initially, the management of Hart should try to give additional incentives to its sales force to drive sales. Sale force of any organization is generally compensated in two ways. One simple way of compensating the sales force is by a fixed salary every month. This method of compensating will be ideal for products which do not need many efforts to sell. The second method of compensating the sales force of an organization is through a combination of salary and commissions on the sales made by the sales persons. This way of rewarding the sales persons of an organization is ideal for products which are difficult to the sold and which are newly released into the market. As the pacers are newly launched into the market, it is ideal to use the combination of salary and commission to compensate the employees.
Measuring Productivity Drivers
Selecting the sales productivity drivers will not be enough for reaching the required sales numbers. Managers should also ensure that the productivity drivers are measured regularly. After finalizing the sales force strategy and selecting the appropriate sales force productivity drivers, the management of Hart should undertake a periodical review to check whether the sales productivity drivers are giving the desired results or not. The best way to measure the productivity drivers is through the actual sales numbers. Opinions of sales people who work on the streets could also prove to be valuable in measuring the effectiveness of the sales force drivers.
In order to ensure that the sales force of the organization can effectively reach the target customer base, care should be taken that the territory in which they operate is properly aligned with the number and divisions of the sales department of the organization. If it is found out that the sales force is not properly aligned with the territory in which it operates, immediate steps should be taken to ensure that the proper changes are made to the sales department of the organization.
In the case of Hart, the new product that is being released into the market, viz. pacers will be sold in the market will be sold in the existing territories where it had operations. Hence, there will not be any need of a radical territory realignment to reach the target customers. The company can continue with the existing territory mapping of its sales force and can think about making required changes as and when they are required in the future.
For a company to be successful in the market, it is not enough to segment the market properly. Marketing managers should also ensure that the target customer base of the organization is also segmented properly. Customer segmentation can be defined as the division of the company’s customer base into discrete groups that have the same set of characteristics. Some of the most common customer segments that are followed by companies around the world are:
Ready-to-Buy Customers. These customers are already convinced to buy the required products from the organization. There will be no need to convince them to buy the products.
Potential Customers. These customers have not made up their mind to buy the products sold by the organization. It might be possible that they might not even be aware of the products that are being sold by the organization. Proper promotion of the company’s products and efforts of the company’s sales force is required in order to reach such customers effectively.
Repeat Customers and Discount Customers. Repeat customers are the ones who are buying the products of the company for the second time. There is no need to convince them much to buy the products sold by the company. Discount customers buy the products of companies only when they are available for a good discounted price. Companies prefer not to bother much about discount customers unless they can be converted into repeat customers.
Impulse Buying Customers. Impulse buying customers decide to buy a product as and when they see a product without planning for the same. Innovative marketing programs like proper placement of products on the shopping in the supermarkets can help in persuading such customers to buy the products of the company.
In the case of the new product, viz. pacers that is launched by Hart, it is likely that most of the target customer base is aware of the characteristics and utility of the product. Hence most the all the target customer base can be segmented as potential customers. In order to properly target and convince them to buy the products sold by the company, it is imperative that the sales force of the organization is properly trained. They should be given all the information regarding the conditions in which the product can be used. Proper training of the sales force will help them in convincing the customers (hospitals/doctors) regarding the merits of the products.
This current section will provide proper recommendations regarding the appropriate size of sales representatives that are required to reach the target customer base and recommended structure of the company’s sales force structure.
Recommended Total Number of Sales Representatives
If the products sold by the organization has to reach the target customer base properly, care needs to be taken that there are required number of sales representatives spread out in the market. In the case of products like medical devices that are mostly sold by the sales representatives directly approaching the target customers, the availability of the required number of sales representatives is even more important.
As specified above, Hart should follow a geographic segmentation of its target market in order to properly target its target customer base. Due to the high costs involved in training the requisite sales force, Hart maintains a limited but very well trained sales force to sell its products. It currently has a total of 93 representatives. While 87 of them work in the geographically determined territories, the remaining are the national account representatives who report directly report to the national account sales manager. Despite increasing the geographically-based representatives whenever there is a need, the number of the national account representatives has remained the same. It is also specified in the case that much of the sales efforts are targeted at the national account hospitals. Unlike the previous products of Hart, the new range of pacers is expensive specially trained sales force to sell in the markets. More importantly, pacers are used in big hospitals and hospital chains with advanced cardiology departments that can perform complicated heart related surgeries.
Hence, most of the sales of pacers will be handled by the national purchasing groups. The company may also need to offer proper discounts in order to book bulk sales from the major customers. A limited number of well-trained national account representatives can handle the sales of the new product and improve the overall sales of the organization effectively than the geographically-based representatives who report to their regional managers. However, the product will also be brought by some independent cardiologists and small regional hospital that can be effectively reached by the geographically-based representatives.
Some of the advantages of increasing the number of national account representatives are:
- Effectively reaching larger clients and book big sales with limited efforts and costs
- Control over the costs incurred for training the sales representatives
- Proper control over the sales efforts when compared with the geographically-based representatives
- Can device a better sales force incentive scheme to incentivize the sales team to meet its targets.
In view of the above discussion, it is recommended that the number of national account representatives be doubled from the existing number of six. The number of geographically-based representatives could also be raised from the existing number of 87 to 110. This will help in improving the sales to independent doctors and small hospitals that also buy the other older products sold by the company like monitors.
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Sujan, H., Weitz, B.A., & Sujan, M. (1988). “Increasing sales productivity by getting salespeople to work smarter”. Journal of Marketing, 8 (2), 9-19.
Wedel, M., & Kamakura, W.A. (2000). Market Segmentation: Conceptual and methodological foundations. New York: Springer.